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AlbanyConsultant

ERISA plan, but plan sponsor doesn't control

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A financial advisor has reached out to me about a 403b plan at TIAA.  The plan has an employer contribution, and TIAA acknowledges that it is an ERISA plan... but they then say that because all the investments are in annuities that the plan sponsor does not control the investments, so the plan sponsor can't decide to move the plan in one fell swoop to another platform - it would have to be up to each participant because they control their own accounts.  Is this just TIAA being TIAA, or do they have a leg to stand on here?  Thanks.

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This is correct. An annuity under a 403(b) plan must be purchased "for an employee." The employee is the owner. So the employer can set up a new investment for future contributions, and can advise employees to move the old money. However, it can typically not move the old money itself. 

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Drat.  Thank you, but drat.

So if the ER still wants to start at a new platform, I could write a new document and have assets going forward for all participants at the new RK and the old accounts at TIAA, but I'd have to convince TIAA that their document no longer governs those accounts?  Or, at least, is subject to any conditions in the new document (which, ha ha).  Because with a few dozen participants, some terminated for 10+ years, there's no way that they will all agree to move to the new RK voluntarily.

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Good morning!

We (QBI, a TPA firm with Ascensus)  administer many of these plans.   A common error in planning for this sort of thing is confusing the investments with the plan document.  This plan, as you describe it, Albany, only has or needs one plan document (and consequently 1 5500 etc).  This one plan will still have investments in the TIAA contracts (I agree:  Most of these older contracts are controlled by the Participants.)  It will have two kinds of investments.  One will be the "legacy" investments in the TIAA annuity contracts and the other will be whatever your plan sponsor decides to use from this point forward (American funds?  Principal?  Empower??).  You do not need or want two plans.

You will need to restate the plan document so that it has liberal investment provisions and is not limited to the TIAA investments or administrative operation.  We (at QBI) also try to persuade the plan sponsor that they should administratively "shut off" contributions to the TIAA investments (all new contributions after a specific date go to the new fund choices).   The exception to this is loans out of the old, annuity contract investments.   TIAA's loan rules on these old contracts are very different from the loan rules which you probably prefer on the new investments.  You cannot control or change the loan rules written into the annuity contracts.  I have language which I write into the SPD's and references for use in the Adoption Agreement (I use an FTW document) which will indicate that the rules applicable to the loans out of the TIAA contracts are  TIAA's rules and that the Participant should contact TIAA for specifics.  I am happy to share if you need my drafting as a sample.  TIAA has improved its reporting on loans a great deal.  Your client (and maybe you as well) will be able to get information regarding loans in default from TIAA (that used to worry us as an old TIAA plan loan default would not have been reported at the plan level).

You can try to encourage Participants to transfer assets to the new investments.  I have not seen this work.  And you are absolutely correct:  you will NOT be able to get terminated employees to transfer out of the TIAA assets.  I don't know if this plan is close to "large plan" size, but if it is, you will want to research the rules concerning "counting" accounts belonging to terminated Participants. See FAB 2009-02 and FAB 2010-01.

All comments or questions are welcome!

PNJ

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Most older TIAA contracts cannot be liquidated except over time, typically in no less than 9-10 annual installments. Associated CREF contracts do not have this restriction. To simplify recordkeeping and the like, willing participants might be able to do a direct transfer of their TIAA contract to an IRA, or not. Some TIAA contracts have transfer restrictions, in-service and otherwise.

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